EEOC's Medicare Regulations Approved

The Equal Employment Opportunity Commission has issued a final rule that exempts employer-sponsored retiree health benefit plans from the Age Discrimination in Employment Act to allow plans to alter, reduce or eliminate such benefits when a retiree turns 65 and becomes eligible for Medicare.

According to the new rule, employers may, at their discretion, provide retiree benefits “only to those retirees who are not yet eligible for Medicare,” and may “alter, reduce or eliminate” retiree health benefits for those retirees who become eligible for Medicare. Essentially, the new rule allows for employers to establish two categories of retirees and to offer more comprehensive benefits to those under 65 and more limited benefits or no benefits to those over 65.

In its preamble to the final rule published in the Federal Register, the EEOC concluded: “The final rule is not intended to encourage employers to eliminate any retiree health benefits they may currently provide.”

It should also be noted that AARP has a pending challenge to the EEOC’s authority to issue the exemption in a federal district court case in Pennsylvania. The Court of Appeals for the 3rd Circuit upheld a ruling in favor of the EEOC, holding that the commission had shown that the exemption was “a reasonable, necessary and proper exercise of its authority.” In November 2007, AARP filed a petition for review by the United States Supreme Court. That remains pending. 29 CFR Parts 1625 and 1627.

Impact: Employer-sponsored health plans are relied on by more than 10 million retirees as their primary source of health coverage or as a supplement to their Medicare benefits. The EEOC’s final rule, effective December 26, 2007, has been met with support among the employer, labor union and benefits community, but has been vehemently opposed by AARP, the advocacy group for older Americans. Employers should continue to monitor this issue as to the Supreme Court’s final ruling on the matter.